Demand for Quality on the Rise

Technology integration has become crucial in the industry and is pushing companies to develop and learn how to deal with these innovations, says Alejandro Calderón, President of the National Association for Representatives, Importers and Distributors of Spare Parts and Accessories (ARIDRA).

An example is how the new standards for vehicle emissions tests are impacting clients’ mindset. In the second half of 2016, Mexico City and other major metropolitan areas in the country implemented stricter emissions testing rules for vehicles bought after 2006. The process became much more technological and instead of connecting the car to traditional emissions gaging equipment, testing centers started using On-Board Diagnostics (OBD) technology. Now, the gage connects to the vehicle’s central computer and revises 15 monitors with information on different components and sensors. Eliminating the possibility of human error forced drivers to see that pirated components and low-quality equipment only set them up to fail the city’s new standards. “Knockoffs can fool the client at first sight but they cannot bypass digital scanners,” says Calderón.

The new rules disqualified six out of every 10 drivers from using their cars every day of the week, says Calderón. Vehicles that fail the emissions test must be rested one weekday every week and two Saturdays per month, assigned according to license plates. Despite the traditional price-oriented nature of the Mexican market, Calderón says that the more accurate testing technique presents an opportunity for distributors to focus only on components with the same quality as original equipment. This will also mean companies and repair shops must profoundly understand how technology works. “Demand for highquality products will increase significantly and clients will realize that quality components can lower the cost of ownership and help reduce fuel consumption,” he says.

The effects of this change in mindset are already palpable and the association sees companies struggling to cope with demand. “The vehicle park keeps growing and more than 1 million new vehicles enter the country on a yearly basis. Coupled with more stringent regulations, this will lead to growth in the aftermarket segment of between 3 and 5 percent, in terms of spare part consumption as well as preventive and corrective maintenance,” says Calderón.

The auto parts sector in Mexico represents approximately 3 percent of national GDP and production has a market value over US$86 billion. Of this number, US$68 billion is destined to exports while the country imports over US$43 billion. This results in a net consumption of over US$61 billion in Mexico. But that total includes components used in the automotive supply chain as well as spare parts sold in the aftermarket. Calderón says that 70 percent of market consumption is linked to the automotive supply chain, leaving US$18 billion for general spare parts used in mining, agriculture and automotive applications. “In the end, US$9 billion worth of components reach spare-part retailers and large distributors.”

Potential for aftermarket players can be measured by the size of Mexico’s vehicle park, which is over 40 million units. Calderón predicts continuing market strength, even considering the current political climate. Mexico’s commercial agreements have been beneficial for the aftermarket, according to Calderón, since they allowed for a reduction in tariffs that led to a more controlled market. He says that before Mexico entered the General Agreement on Tariffs and Trade (GATT), a commercial partnership between 23 countries, importing some components could have entailed tariffs of over 300 percent. Distributors could either deal with locally manufactured products or resort to the black market.

The tariffs at 0 percent throughout 2016 fueled an increase in demand for original equipment. “President Trump’s beef is with automakers, not with the aftermarket,” says Calderón. “If the US were to pull out of NAFTA, export and import taxes between Mexico and the US would have to revert to their previous state. Since both countries were part of the GATT, trade taxes on auto parts were at zero so it would not make sense to raise them to 20 or 35 percent.” Calderón also says that breaking a relationship as intricate as NAFTA would not only impact the automotive industry. “A trade agreement like this would have implications for agriculture, mining, retail and many other sectors in both economies.”